Speculation Mounts Over RBA October Meeting
As the RBA heads towards it October meeting, there are a number of important issues on the agenda. The price of iron ore which was one of the major topics of the September meeting have now seen a 26% resurgence in price and the world’s fourth biggest exporter of iron ore, Fortescu Metals, has announced that its US$4.5-billion debt deal will now enable it to refinance any outstanding deals. The central banks in Europe and the United States have announced their intentions to fight off inflation and stimulate asset prices by printing unlimited money while China will be contributing a $150-billion package to the mix.
Despite international uncertainties Australia’s unemployment rate of only 5.1% continues to impress. One pressing issue on the itinerary will be the country’s exchange rate which has topped itself at 104 US cents, but sceptics question whether there is anything the RBA can do to a currency that has been stubbornly unresponsive to the 125 basis point cuts to date.
The housing market is being looked to as one realistic benchmark of what’s really happening in the economy and September data has indicated that, despite criticisms, the 75 basis point cut that was extended in May and June is indeed having a positive effect on markets.
Australia’s five capital cities have seen house prices inflate by 1.9% between 01 June and 19 September. And the biggest performers appear to be Sydney and Melbourne where home values have increased by 2.5% and 2.4%. Furthermore, the value of homes has increased by 0.7% in Adelaide, 0.9% in Perth and 1.3% in Brisbane since the beginning of June. This is combined with better performances from auction clearance rates, which are also starting to climb again. As Australia’s unemployment rate remains low and home loan default rates are on the decrease the number of new listings on the auction front have dropped by 15% compared to their 2011 levels.
Despite conflicting reports on market activity AFG, the country’s biggest home loan broker that is responsible for 10% of the country’s home loans has declared that August saw its biggest increase in new home loans in the last three years. Bankwest, the leader in terms of rates offered, has also posted improvements.
For buyers, fixed rate loans are currently the most attractive and are now sitting at 169 basis points lower than the averages marked for the last 19 years.
For first time homebuyers the secret to avoiding lenders’ mortgage insurance is amassing the requisite 20% deposit. In the majority of cases, lenders will allow first time home buyers to use a family member to act as surety on the loan, in order to circumnavigate mortgage insurance but the guarantor will be held financially liable if the borrower ever defaults.
On a positive note, the sluggishness of the property market literally buys the first time home owner more to enter the market and save the deposit up before applying for a loan. Analysts are reminding buyers of this fact and caution first time homebuyers that, given the slow rate of recovery, there is no major rush to jump into things.
Market trends also reveal that there is now a greater demand for loans that require smaller upfront deposits. For the consumer the risk of this kind of scenario is that a significant drop in housing prices will mean that the buyer has a negative equity in the property leaving them vulnerable to risks in the event that something does go wrong. The warning makes sense in light of the fact that loan approvals have gone into decline but that the number being granted to first time buyers has increased significantly between July 2011 and July 2012.
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